Malcolm Moore is the Telegraph's Shanghai Correspondent. He arrived in China in July 2008 after three years in Italy as the Telegraph's Rome Correspondent. Before that, he was the paper's Economics Correspondent.

The arrest of Rio Tinto staff is bonkers

In that short time, China has pulled off a successful Olympic games, rebuilt swathes of Sichuan that were devastated by the earthquake, and dealt brilliantly with the effects of the financial crisis.

The Communist party has continued to reform the country rapidly and meaningfully. Looking forward, I'm hugely optimistic about the path this giant country (continent really) is treading.

But every so often (and usually when you least expect it) something bonkers comes out of the blue.

Whichever Shanghai official ordered the arrest of four Rio Tinto executives for "stealing state secrets" is unhinged.

The four men – three Chinese and one Australian – were part of Rio Tinto's iron ore sales team in Shanghai. Their job is to import Rio Tinto's iron ore from Australia and sell it to Chinese steel mills. Stern Hu, the Australian, was the most senior Rio salesman in China.

Since 1981, the price of iron ore has been fixed annually at the end of each year. Every steel mill in China is supposed to buy the iron ore at the same price, and in recent years, the price has soared (in 2008, it went up by 85pc at the height of the commodity bubble). Obviously times are harder now, so China is trying to negotiate a 40pc discount on the price.

China imports a clunkingly huge quantity of iron ore (more than £9 billion from Australia alone last year), so the negotiations are delicate.

Against this backdrop, the four Rio executives seem to have been sounding out Chinese steel companies about the sort of price China would eventually agree to pay for its iron ore.

The full facts are not known, and we don't know how far the men went to get the information they needed, but to me, this seems like entirely normal and sensible corporate behaviour – to make your plans for the following year, it's worth trying to find out how much money you're likely to get for your product, and what the bottom line in the negotiations is likely to be.

It's very likely that these men have been doing similar research for years without any problems. This year however, they ran into trouble, coincidentally just one month after Rio Tinto performed a dramatic U-turn and stiffed Chinalco on a proposed £14 billion merger.

“As understood from a Shanghai State Security Bureau, during China’s iron ore negotiations with foreign miners in 2009, Stern Hu gathered and stole state secrets from China via illegal means including bribing internal staff of Chinese steel companies,” the Australian Foreign minister said.

(It's worth noting from this statement, incidentally, that the men are accused of bribing "the internal staff of Chinese steel companies" and not government officials – although of course some state-owned steelmakers are staffed by Communist party officials.)

An executive from Shougang, the Chinese steel mill, who met with Mr Hu has also been arrested, and others are under investigation.

The worry is that what appears to be within the scope of normal Western corporate behaviour has clearly crossed some line here in China.

China's murky state secrets law is a broad catch-all which can be applied to almost anything, even to information which is publicly circulated and then subsequently withdrawn.

Even if a piece of information is available all over the internet, it can be classified a state secret retroactively if it becomes a point of contention or embarrassment.

The Wall Street Journal points out that Rebiya Kadeer, who is currently in the limelight after being accused by China of masterminding the riots in Xinjiang, was sentenced to eight years in prison in 2000 after she sent Chinese newspaper clippings to her husband in the US and violated the state secrets law.

Anyone prosecuted under the law also has little hope of a transparent trial – because of course that would involve the emergence of more "state secrets", as the logic goes.

Every foreigner working in China knows that he or she is here only at the pleasure of the Chinese. And companies are willing to accept bizarre behaviour and rules because of the lure of the Chinese market.

But, judging from the panic in the currency markets, the opaque and seemingly arbitrary nature of the Rio Tinto arrests has spooked the business world, and just at a time when China should be looking to entice international investors. Ouch.